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California Hopes for Economic Recovery in 2002 - 2001-12-25

October 28, 2009 6:12 AM

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California Hopes for Economic Recovery in 2002 - 2001-12-25

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The state of California accounts for nearly 15 percent of the U.S. economy, ranking ahead of countries like France and Italy in its gross product. Events of the past year have hurt California's economy. They include a West Coast energy crisis and a jolt to consumer confidence after September's terror attacks on the East Coast. Economists expect an improvement in the economy next year.

One year ago, California was near the top of the list among U.S. states for its rate of income growth. But then came widespread layoffs in high-tech Silicon Valley, and income growth in California has now dropped below the average for the 50 U.S. states.

Economist Tom Lieser of the University of California, Los Angeles says intermittent electricity cuts earlier this year are also to blame for a business slump and stagnant wages. A failed energy deregulation plan and subsequent power shortage forced Californians to buy high-priced electricity from out of state. Mr. Lieser says the nationwide recession is also reducing incomes.

"Along with the electricity crisis, we've had another problem, which is the loss of a lot of high paid jobs in Silicon Valley, and the loss of a lot of income related to the stock market, which was a more important source in California than it was for the rest of the country, with stock options here having been very popular, [as well as] year-end bonuses," he said.

Coupled with problems in the high-tech sector, economist Christopher Thornberg points to events of September 11 in explaining the recent downturn. Mr. Thornberg is also an analyst with the Anderson business school at UCLA. The attacks on New York's World Trade Center led to a major drop in U.S. economic figures for September. But the analyst says the shock was short-lived, and October's numbers improved as life returned to normal. "Automobiles in particular had one of the best months in the history of automobiles," he said. "But even without automobiles, you saw a big increase in consumer spending, you saw a big increase in retail sales, you saw big increases in durable goods orders. So in other words, it's a bounce. This is the upside of the bounce. And these sharp downturns we saw in September were a symptom of the attacks, and it did not create a bust in the economy, and what we're seeing now is a return to the path we were already on."

That path, Mr. Thornberg concedes, is not an especially good one. Economists say that since last March, the United States has been in recession.

Mr. Thornberg and Mr. Lieser worry about factors that could slow recovery, from added security costs in the wake of September 11 to an unpaid power bill of $17 billion in California.

Low prices for natural gas and oil have helped the region, says economist Peter Navarro of the University of California, Irvine. But he worries about U.S. dependence on foreign oil.

"In the wake of attack and the recession, and the entry of Russia in a big way into the oil market bargaining, oil prices are severely depressed," he said. "But if we've learned anything from the electricity and energy crisis in California, it's the need for a diversified portfolio. So we must not lose sight of the need to develop new technology sources of energy, from photovoltaics to fuel cells and on down. If we lose sight of that, we're going to wind up in five or ten years again facing the same kind of crisis under the same kind of considerations, and we'll be blackmailed again, just like we always are."

Other economists look forward to new oil drilling in wilderness regions of Alaska to boost domestic production. That proposed drilling, which is now being debated in the U.S. Senate, is strongly opposed by environmentalists.

California is the most populous U.S. state, with 34 million people, and it is growing. Economist Tom Lieser warns unemployment may stay high in the state for another two years. He says displaced workers who lost their jobs in the current recession will reenter the work force as the economy improves. But they will compete for jobs with young people who are finishing high school and college.

Mr. Lieser says California is a major economic power in its own rite, and as an international trader, it is linked to the world economy. In fact, if California were a country it would be number five in the world in its gross domestic, product, exceeding the GDP of nations like China. But California's recovery depends directly on the health of its most important trading partner, the rest of the United States. Mr. Lieser says with luck, the turnaround for California and the nation should start in April. After that, he expects slow growth for the rest of the year.